Re: FINRA request for comment on a Concept Proposal
Transcript of Re: FINRA request for comment on a Concept Proposal
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Richard G. Ketchum
Chairman and Chief Executive Officer of FINRA
1 Liberty Plaza
165 Broadway
New York, NY 10006
Marcia E. Asquith
Office of the Corporate Secretary
1735 K Street, NW
Washington, DC 20006-1506
27 July 2015
Re: FINRA request for comment on a Concept Proposal to Restructure the Representative-Level
Qualification Examination Program
Dear Mr. Ketchum,
CFA Institute appreciates the opportunity to comment to the Financial Industry Regulatory Authority
(“FINRA”) with regard to Regulatory Notice 15-20 (“the Notice”) pertaining to the restructuring of the
representative-level qualification examinations. CFA Institute represents the views of investment
professionals before standard setters, regulatory authorities, and legislative bodies worldwide on issues
that affect the practice of financial analysis and investment management, education and licensing
requirements for investment professionals, and on issues that affect the integrity and accountability of
global financial markets.
The Notice published on June 1, 2015 introduces a concept proposal whereby all potential representative-
level registrants would take a general knowledge examination and an appropriate specialized knowledge
examination to reflect their particular registered role. The Notice seeks input from member firms and
other stakeholders, such as investment professionals, investors and professional associations.
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CFA Institute believes this consultation is timely, relevant, and in the best interests of investors. At CFA
Institute, we consider that high standards of proficiency can have a positive impact in helping ensure
investor protection and the integrity and efficiency of capital markets. It is clear that the restructure of the
qualification examinations further advances FINRA’s already high proficiency standards. As a result,
CFA Institute supports FINRA’s concept proposal for representative-level registrants to continue to
safeguard the highest levels of professionalism in the industry.
Currently FINRA believes that its representative level exam structure contains too many exams with too
much content overlap. With this proposal on exam qualification restructuring FINRA is seeking to
improve overall efficiency in its representative level exam structure primarily by creating one exam, the
SIE exam, which would eliminate duplicative testing of general securities knowledge. In addition, FINRA
is proposing to combine the SIE with a revised specialized examination for each of its representative
categories. In this process FINRA is also proposing to eliminate a number of registration categories with
low enrollment.
Overall, CFA Institute believes that the approach as described is certainly viable and represents an
improvement over the current arrangement. Hence our supportive views on FINRA’s proposal in its
current form.
Background on CFA Institute and the CFA Charter
CFA Institute is the leading global association of investment professionals with more than 133,000
members in more than 147 countries. Our mission is to lead the investment profession globally by
promoting the highest standards of ethics, education, and professional excellence for the ultimate benefit
of society. We aspire to serve all finance professionals seeking education, knowledge, and professional
development. CFA Institute also seeks to lead the investment profession’s thinking in the areas of ethics,
capital market integrity, and excellence of practice.
As part of its portfolio of educational programs, CFA Institute offers the Chartered Financial Analyst®
(CFA®) charter, which is the global investment industry’s most challenging and most widely respected
graduate-level investment credential. Earning the charter requires demonstrating four years of
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professional investment experience, committing to uphold a comprehensive code of ethics, and passing
three levels of rigorous exams that test an advanced curriculum of investment management and analysis
skills. This achievement takes multiple years of persistent effort and hundreds of hours of study per exam
level. Successfully doing so demonstrates a commitment to professional ethics as well as a mastery of a
comprehensive range of advanced investment principles needed to successfully practice in the investment
industry.
The CFA program curriculum is grounded in the practice of the investment profession. CFA Institute,
through the oversight of the Educational Advisory Committee, regularly conducts a practice analysis
survey of investment professionals around the world to determine the knowledge, skills, and abilities
(competencies) that are relevant to the profession. The results of the practice analysis define the Global
Body of Investment Knowledge and the CFA program Candidate Body of Knowledge. The topic areas
covered by the CFA program range from ethical and professional standards, investment tools, all asset
classes, and portfolio management.
In addition to the CFA charter, CFA Institute also offers the Claritas Investment Certificate and the
Certificate in Investment Performance Measurement (CIPM). The Claritas Investment Certificate is
intended for those working in support roles in the financial industry and who need to have a clear
understanding of how the financial industry works. Finally the CIPM is focused on performance
attribution and manager selection.
CFA Membership and Candidate Pool in the United States of America
As stated previously, CFA Institute has more than 130,000 members, and approximately 220,000
candidates sit for the CFA exams each year. In the United States of America, CFA Institute has more than
56,000 CFA charterholders and about 40,000 candidates sat for the exams in the most recently completed
exam cycle.
There are thirty-five CFA Societies in the United States that operate as not-for-profit organizations
supporting the professional development and advancement of CFA charterholders. The societies provide
member services including educational programs, sponsored events, employment postings, and
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networking opportunities. Some of the largest CFA societies in the United States are amongst the top ten
CFA Societies around the world and include the New York Society of Security Analysts (NYSSA) with
more than 10,000 members, Boston Society of Securities Analysts with 5,000, CFA Chicago with 3,000
members and CFA San Francisco with 3,000.
CFA Program Recognition by Regulatory Agencies in the United States of America
Regulators around the world recognize the rigor of the CFA program by granting waivers from their own
requirements for those who successfully participate in the CFA program. In all, regulators from twenty-
nine countries or territories formally recognize the CFA program. In the case of the United States of
America, the CFA Program has been recognized by regulatory agencies for certain job roles within the
investment profession, thus allowing our candidates and charterholders to waive some of the Series exams
required by FINRA, the North American Securities Administrators Association (NASAA) and the New
York Stock Exchange (NYSE).
The NASAA has granted a waiver to the CFA Charter from the Uniform Investment Adviser
Examination (Series 65) that is administered by FINRA and required for investment advisors
managing up to US$100 Million.
The NYSE exempts those who have passed CFA Level I and Part I of the NYSE Supervisory
Analysts Qualification Exam (Series 16) from Part II of this two part exam.
The NYSE and FINRA grant a waiver from the Series 86 exam for successful CFA Level II
candidates who function as research analysts;
The CFA Program benchmarked as Masters’ degree equivalent
The CFA Charter has been benchmarked by the National Academic Recognition Information Centre
(NARIC) as comparable to a Master’s Degree program or to the United Kingdom’s Qualifications and
Credit Framework (QCF) Level 7. Additionally, each level of the program has been benchmarked by
NARIC as follows: (a) Level III of the CFA Program is benchmarked at Level 7; (b) Level II of the CFA
Program is benchmarked at Level 6 and; (c) Level I of the CFA Program is benchmarked at Level 5.
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Question 1: FINRA is proposing to move to a general knowledge examination and specialized knowledge
examinations for the representative-level qualification examinations. Does moving to this type of
structure make sense? Would it help member firms better manage and develop individuals?
FINRA is proposing to move to a core and top off approach for its representative level qualifications. This
approach entails combining a general knowledge examination, the Securities Industry Essentials (SIE)
examination, with specialized knowledge examinations, depending upon the particular representative
category chosen by an individual.
CFA Institute believes FINRA’s proposal makes sense, and we support it. We understand that the existing
qualification structure has become overly complex and needs to be simplified. Within the past few years
certain regulatory events and the introduction of new products in the industry has caused the need to
create new exams and registration categories. As a consequence there are 16 representative level
qualifications available as illustrated below:
In light of the complexity of the current qualification structure, we support FINRA’s efforts in trying to
streamline the representative level qualifications. It is clear to us that the core-top off approach will
eliminate redundancies in the content of the examinations and simplify the structure. Therefore we agree
with FINRA that this change was overdue.
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In addition to simplification, we feel the new approach will make FINRA a more effective regulator since
some of the registration categories will be retired and duplicative testing reduced. All this, should allow
FINRA to be a more focused and effective regulator. As to investors we consider that the new structure
would also be beneficial because it would bring considerable clarity to the registration process
requirements. Investors will be able to understand in much simpler terms the requirements to practice in
the financial industry.
As to member firms, we have confidence the core top-off approach will help firms better develop and
manage individuals and reduce costs. The Essentials Exam, which is required to all representative
categories, will give all professionals a common understanding of the investment industry. This will make
it easier for an individual to move from one representative category to another, thus increasing flexibility
for member firms in developing and managing individuals. As to costs, FINRA expects that due to the
fact that the specialized qualification exams will be shorter in length that exam fees will be reduced which
is good news for the industry and professionals.
Finally, with this approach we also deem that professionals will benefit as it will likely increase career
opportunities and make practicing in the industry more accessible, especially for those who are truly
committed. For the reasons that the Essentials Exam does not require candidates to be associated with a
member firm and has a validity of four years, we expect this will spur significant interest in the student
community and allow for candidates to prepare and search for adequate opportunities in the industry over
time.
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Will all that said, and consistent with our responses to subsequent questions, CFA Institute would like to
encourage FINRA to also consider granting waivers to individuals who are on the path of completing an
appropriate professional qualification, such as the CFA Program. This would have the effect of providing
choices to the industry in terms of education and recognizing the accomplishments of those who
demonstrate interest in acquiring a professional body of knowledge. Furthermore, it need not have a
negative effect on the economics of the new structure for FINRA. Examination fees could simply be
adjusted to compensate.
Question 2: FINRA is proposing to create the SIE covering fundamental securities industry knowledge.
Do you consider the content listed in the sample content outline to be common knowledge? Is there other
knowledge not listed that you believe should be included on the SIE? What is an appropriate level of
depth?
CFA Institute considers the content outline listed for the SIE Exam to be common knowledge. The draft
outline contains four proposed major topic areas which fit the purpose of the SIE exam to provide a basic
understanding of the industry. These topic areas are: (1) “Knowledge of Capital Markets,” that focuses on
types of markets, offerings, broker-dealers and economic cycles; (2) “Understanding Products and Their
Risks,” covering securities products at a high level as well as associated investment risks; (3)
“Understanding Trading, Customer Accounts and Prohibited Activities,” that focuses on accounts, orders,
settlement and prohibited activities; and (5) “Overview of the Regulatory Framework,” encompasses
topics such as SROs, registration requirements and specified conduct rules.
We believe that the knowledge of these four major topic areas is central to gaining an understanding of
the investment industry. Additionally we note that the content proposed is balanced in terms of breadth
and depth of content and expect it will not be subject to significant changes over time.
As to content that could be added we believe that some coverage of “Quantitative Concepts” (i.e. Time
Value of Money) is necessary. Knowledge of quantitative concepts is extremely important to
understanding the world of finance and investing, because they play a key role in helping make financial
decisions, such as saving and borrowing, and also form the foundation for valuing investment
opportunities. Additionally we feel that coverage of how best to “Serve Client Needs” would be a plus.
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Clients differ in terms of their financial resources, objectives, attitudes and financial expertise and so on.
These differences affect their investment needs, what services they require, and what investments are
appropriate for them. Thus the importance, to understand each of their specific circumstances in order to
best support them in meeting their objectives.
Finally, we would recommend a section on “Risk Management Process”, to introduce the types of risks
that financial firms in the investment industry and professionals face. Although risk managements is
viewed as a specialist function, a good risk management process will encompass the entire company and
filter down from senior management to employees, giving them advice in carrying out their roles. Any
actions taken by employees may end up affecting the firm’s risk profile, even if these actions are regular
daily activities. Thus, our view that the SIE should have some coverage of risk management.
We consider the suggested three additional topics to be common knowledge as well. Our
recommendations are the result of our own experience in creating the Claritas Investment Certificate,
which is a program that has a similar purpose as the Essentials Exam. Back in May 2014, CFA Institute
launched the Claritas Investment Certificate with the objective to help professionals gain a basic
understanding of how the financial industry works. The Claritas Program covers the essentials of finance,
ethics, and investment roles. The topic areas are organized into seven modules titled: (1) Industry
Overview; (2) Ethics and Regulation; (3) Inputs and Tools; (4) Investment Instruments; (5) Industry
Structure; (6) Serving Client Needs and (7) Industry Controls.
If we compare the content outlines of the SIE exam with the Claritas program we can draw some parallels
between the materials covered. Conducting a preliminary mapping analysis we see that the Claritas
program covers a high level of content of the SIE exam, except for the FINRA “Associated Rules”
(specific rules and regulations).
Based on the identified similarities, our conclusion from the mapping is that the proposed SIE exam
outline resembles the Claritas Investment Certificate excluding the associated rules. This analysis
supports our view that the SIE exam covers the essentials of finance and has an adequate content outline
in its draft form saving for the three areas we suggested including. In the next page we provide a
comparison table of the content outlines of the SIE versus Claritas.
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Comparison Table – SIE Exam and Claritas Investment Certificate
FINRA Essentials Exams Content Outline Claritas Investment Certificate Coverage
Section 1 – Knowledge of Capital Markets
Market Structure Chapter 1: The Investment Industry
Chapter 15: The Functioning of Financial Markets
Factors that affect the securities markets Chapter 5: Macroeconomics
Chapter 6: Economics of International Trade
Associated Rules
Section 2 – Understanding products and their risks
Products Chapter 9: Debt Securities
Chapter 10: Equity Securities
Chapter 11: Derivatives
Chapter 12 Alternative Investments
Chapter 14: Investment Vehicles
Investment Risks
Associated Rules
Section 3 – Understanding Trading, Customer Accounts & Prohibited Activities
Trading, Settlement and Corporate Actions Chapter 15: The Functioning of Financial Markets
Chapter 10: Equity Securities
Customer Accounts & Compliance Considerations Chapter 10: Equity Securities
Chapter 20: Investment Industry Documentation
Account Statements, Confirmations and Settlement Chapter 15: The Functioning of Financial Markets
Prohibited Activities Chapter 2: Ethics and Investment Professionalism
Associated Rules
Section 4 – Overview of the regulatory framework
Regulatory Entities Chapter 3: Regulation (general principles on
regulation) SRO Regulatory Requirements Associated Persons
Associated Rules
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Question 3: FINRA is proposing to allow any individual, including an individual who is not associated
with a member firm, to take the SIE. Further, a passing result on the SIE would be valid for four years.
Does this approach make sense? Is four years a reasonable length of time for a passing result on the SIE
examination to be valid?
CFA Institute supports FINRA’s approach to allowing any individual, including an individual who is not
associated with a member firm, to take the SIE exam. We expect this measure will benefit particularly
those individuals who are not yet associated with a member firm and who wish to gain access to the
industry in the not so distant future. The proposal clearly would clearly make the industry more accessible
and permits future professionals to plan ahead their entry while building their knowledge over time. It is
likely that this new measure will generate significant interest from the student community resulting in
firms realizing savings from not having to sponsor candidates to sit for the SIE exam but just for the
specialized exams. Over time it is likely that firms will only consider for their interview process those
candidates who have passed the SIE exam.
With that said, we also think that the new proposed framework would flexibilize the current structure
while at the same time take away some of the pressure that typically comes from having to earn your
place at a member firm and pass a 6 hour exam within 3 or 4 months’ time period. With the new
proposed changes, having to sit just for a specialized exam, not only reduces the lead time for individuals
to start producing for the firm but also allows professionals to focus their efforts in obtaining the
necessary experience and practical expertise to practice in the industry. Thus, our conclusion that this is a
more practical approach.
As to whether four years is a reasonable length of time for a passing result on the SIE examination to be
valid, we believe that it is. We would agree with FINRA that the content of the SIE exam is fundamental
in nature and therefore not subject to much change over time. Consequently, we feel that permitting four
years as the validity period for passing the SIE exam is appropriate because it would allow individuals
sufficient time to become associated with a member firm. Recent trends in employment have made it
difficult to become associated and so four years we think is more than enough time to compensate for
possible changes in the economic cycles.
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Question 4: FINRA is proposing retiring the Options Representative, the Corporate Securities
Representative and the Government Securities Representative registration categories and the associated
Series 42, Series 62 and Series 72 examinations. Do you believe that FINRA should retain any of these
examinations? If so, why? Should FINRA consider retiring any other representative-level registration
categories that it is considering retaining under the proposal?
We support FINRA’s intention to retire the Options Representative, the Corporate Securities
Representative and the Government Securities Representative registration categories and their associated
Series 42, Series 62 and Series 72 examinations. In our view these registration categories allow an
individual to sell a subset of the products that is permitted to be sold by a General Securities
Representative. Therefore retiring these registration categories and their respective exams will help
streamline the qualification examinations and further consolidate these subsets of registrations into the
General Securities Representative category.
Additionally, we also take note of FINRA’s disclosure that these categories have seen recent low volumes
in registrations probably because firms and individuals have opted to register under the General Securities
Representative category which allows to sell a wide array of products including options, corporate and
government securities. For these reasons we agree with FINRA that the value of these registrations has
diminished and it seems right to retire them.
Question 5: FINRA is considering retiring the U.K. Securities Representative and the Canadian
Securities Representative registration categories and the associated Series 17, Series 37 and Series 38
examinations and instead determine foreign qualifications that would exempt an individual from taking
the SIE. Do you believe that this approach makes sense or should FINRA create specialized knowledge
examinations for the Series 17, Series 37 and Series 38 similar to the other specialized knowledge
examinations described in the proposal?
We agree with FINRA that the U.K Securities Representative and the Canadian Securities Representative
categories and the associated Series 17, Series 37 and Series 38 examinations should be retired. CFA
Institute believes that FINRA could instead determine foreign qualifications that would exempt an
individual from taking the SIE or the specialized exams.
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We consider that the qualification approach will result in additional efficiencies and improve the ability of
professionals to passport their qualifications. In this regard we believe that CFA Institute programs can
help as they already have considerable recognition in the U.K and Canada.
For example in the U.K., the FCA has approved CFA Level 1 plus the full Investment Management
Certificate qualification as being Retail Distribution Review (RDR) compliant for those advising and
dealing in securities and derivatives. The combination of these two qualifications is listed by the FCA (on
the Appropriate Qualifications table) as fully meeting requirements of the RDR. Please note that this
works in combination. That is, IMC or CFA Level I alone are not RDR compliant.
In the case of those who hold the CFA charter, the FCA approved the CFA Charter plus “IMC Unit 1:
The investment environment”, as RDR compliant for those advising and dealing in securities and
derivatives. The combination of these two qualifications is listed by the FCA (on the Appropriate
Qualifications table) as fully meeting requirements of the Retail Distribution Review (RDR). Once again,
this works in combination since neither IMC Unit 1 nor the CFA charter alone are RDR compliant.
IMC Units 1+2
IMC Unit 1 CFA Charter
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As to the Claritas Investment Certificate, in the U.K. Claritas has been recognized by the Financial
Conduct Authority as a “Key 4” for the following job roles under the Retail Distribution Requirements
(RDR):
Activity 15: Overseeing on a day to day basis operating a collective investment scheme or
undertaking activities of a trustee or depositary of a collective investment scheme
Activity 16: Overseeing on a day to day basis safeguarding and administering investments or
holding client money
Activity 17: Overseeing on a day to day basis administrative functions in relation to managing
investments
Activity 18: Overseeing on a day to day basis administrative functions in relation to effecting or
carrying out contracts of insurance which are life policies
Activity 19: Overseeing on a day to day basis administrative functions in relation to the operation
of stakeholder pension schemes
The roles listed require a combination of Keys 4+5+6. The requirement can be fulfilled with the
combination of the Claritas Investment Certificate with another paper(s), typically focused on local
regulations (Key 5) and operations (Key 6).
Even in Canada, the requirements under the National Instrument 31-103 (Registration Requirements,
Exemptions and Ongoing Registrant Obligations) follow a similar approach. In NI 31-103 the Canadian
Securities Administrators prescribes the minimum level of proficiency necessary for registration as a
portfolio manager associate advising representative or a portfolio manager advising representative.
For the portfolio manager associate advising representative CFA Level I is recognized as an acceptable
standard but only the CFA Charter is recognized for the more experienced position such as the portfolio
manager advising representatives. Per NI 31-103:
Portfolio Manager – Associate Advising Representative: “An associate advising representative of a
portfolio manager must not act as an adviser on behalf of the portfolio manager unless any of the
following apply: (a) the individual has completed CFA Level I of the Chartered Financial Analyst
program and has gained 24 months of relevant investment management experience; (b) the individual has
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received the Canadian Investment Manager designation and has gained 24 months of relevant investment
management experience.”[…]
Portfolio Manager – Advising Representative: “An advising representative of a portfolio manager must
not act as an adviser on behalf of the portfolio manager unless any of the following apply: (a) the
individual has earned a CFA Charter and has gained 12 months of relevant investment management
experience in the 36-month period before applying for registration; (b) the individual has received the
Canadian Investment Manager designation and has gained 48 months of relevant investment management
experience, 12 months of which was gained in the 36-month period before applying for registration.”[…]
Question 6: FINRA is considering retiring the Order Processing Assistant Representative registration
category and the associated Series 11 examination. Do you believe that there is utility in continuing to
maintain this registration category and examination?
We believe there is no utility in continuing to maintain the registration category of Order Processing
Assistant Representative. As FINRA states the volume of candidates sitting for the Series 11 examination
has diminished considerably. This coupled with the recent technological advances and industry changes
leads us to believe it may make sense to retire this category as well.
Question 7: Are there any other potential economic impacts of the proposal that need to be identified?
As FINRA notes in its consultation paper, the costs associated with revising the representative level
examination structure falls most on FINRA itself. However, the extent that the proposed structure proves
to be more efficient, costs should, over time, be reduced. At the same time, opening up the representative
examination structure to the general public should lead to a greater number of test takers, which should
also lead to an increase in net revenues. Unknown at this time is the extent to which any future change in
the pricing of examination fees may affect this dynamic.
One possible factor that could affect the economics of the proposed change is the extent to which FINRA
is willing to grant waivers to any portion of its new examination structure. For example, CFA Institute
currently enjoys a waiver for successful CFA Level II candidates for the current Series 86 examination,
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and we would welcome the opportunity to demonstrate that this remains a mutually beneficial
arrangement once the content for the proposed specialized Series 86 examination has been developed.
But in addition to this, approximately one half of the content (generally speaking, Sections 2 and 3) of the
proposed SIE exam could typically be covered in a variety of ways, such as college level investment
courses or as part of the program of study in various professional designations. FINRA may wish to
consider offering a waiver for the investment content portion of the SIE exam for those who have passed
a college level investments course or have made sufficient progress towards earning an appropriate
professional qualification. This would, of course, require structuring the SIE exam in two parts in which
one part would cover the investment related content, and another would cover the industry laws, rules,
and regulations. Done in this manner, this could have a modestly positive effect on the economics of this
proposal. Specifically, FINRA could base its examination fee on taking the full SIE. But for individuals
who could be eligible for a waiver, they need only take, and FINRA would only have to grade, half of the
exam.
Related to this, FINRA may wish to consider the possibility of outsourcing to a third party the
development and testing of the laws, rules, and regulations portion of the SIE exam. This could prove
economically attractive to FINRA. If such an arrangement is structured in a way that FINRA were to
collect a fee for each candidate from a third party provider, while the third party provider absorbs the
costs of developing and administering the exam, FINRA could benefit economically.
Question 8: Are there more effective ways to achieve the proposal’s goals?
CFA Institute believes that FINRA’s approach to restructuring the representative-level qualification
examinations is reasonable and will be effective. With that said, we would suggest that FINRA gives
consideration to the granting of exemptions to CFA Institute’s programs under the new representative
qualification regime.
The reason behind our request is our belief that our programs would qualify under NASD rule 1070 for
qualification examination waivers as an exceptional case, where good cause can be shown. In view of
that, we would encourage FINRA to accept our standards as evidence of an applicant’s qualifications for
registration (as it already does for the Series 86 and other examinations). Ultimately our objective is to
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help our members and candidates bridge the gap in meeting licensing requirements and avoid unnecessary
duplicative testing. At CFA Institute we believe that FINRA maintains high proficiency standards and a
robust proficiency regime which has helped ensure investor protection and integrity of capital markets.
FINRA’s exams play an essential role and are here to stay. However, we believe it would be beneficial for
FINRA to consider recognizing our programs for several reasons.
The first reason is that recognizing CFA Institute’s programs will allow FINRA to capitalize on our
reputation and experience in training professionals. Another reason is that having our programs
participate in the framework would provide choices to finance professionals. The ability to make choices
in regards to training and the attainment of competence is most critical in our view, as it gives individuals
not only a sense of ownership but also of empowerment. With that said, if some individuals feel that
pursuing a qualification such as the CFA Charter is in their best interests that should be respected without
requiring them to complete additional tests. Having CFA candidates be part of the financial ecosystem
we believe is important because of the emphasis our programs place on ethical behavior and achieving
excellence in professionalism.
Finally, recognizing our programs would allow individuals to “passport” their qualifications to other
jurisdictions. The term passporting refers to the ability of individuals to use their investment
qualifications across borders and qualify for licensure. CFA Institute’s programs already enjoy broad
acceptance by many regulators around the world which speaks to the value and trust that regulatory
agencies have placed in our programs. If FINRA were to recognize our programs individuals who then
decided to practice in other jurisdictions such as the UK, Canada, Singapore and many others would
qualify without the need to complete additional exams.
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Request to FINRA to consider granting an exemption to the Claritas Investment Certificate plus gap-
fill course for the SIE exam.
Considering the similarities identified in question two between the Claritas Investment Certificate and the
SIE exam (except for the coverage of local rules and regulations) we would like to request FINRA to
consider the following proposal:
Our proposal for an exemption of the SIE exam would consist of combining the Claritas Investment
Certificate (a core knowledge exam) with a gap-fill course that would cover all the associated rules. The
gap-fill course would also have an assessment. At CFA Institute we understand the need for professionals
to have both knowledge of business and associated rules and regulations, hence our proposal to combine
Claritas (which is global in nature) with a gap-fill that would cover associated rules. In the next page we
provide the content outline of both programs in combination.
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Claritas Investment Certificate Outline Claritas GAP-FILL Course Outline
Module 1 - Industry Overview
Chapter 1 – The Investment Industry
Associated Rules:
FINRA By-Laws Article IV section 6 and
Rules: 1000, 2010, 2020, 2040, 2060,
2090, 2150, 2210, 2213, 2260, 2266,
2330, 2342, 2360, 3220, 3240, 3270,
3310, 4200, 4311, 4330, 4512, 4513,
4530, 5130, 5210, 5220, 5230, 5240,
5250, 5270, 5280, 5290, 5310, 5320, 6438
NASD Rules 1000, 2510, 3040, 3050
NYSE Rule 407, 401A
USA Patriot Act, Section 326
Federal Reserve Board Regulation T
Securities Exchange Act of 1934: Rule
15c3-1
Securities Act of 1933: Sections 7, 8, 10;
Schedules A &B; Regulation D, Rules
144, 144A, 145, 147, 164
MSRB Constitution and Rules: Rules G-1
through G-41,G37, D-8 through D-12
Investment Company Act of 1940: Rule
12b-1, Sections 3(a), 4, 5
SEA Rules 3a11-1, 10b-18, 10b-5, 10b5-
1, Section 11d
SEC Regulation M, NMS, S-P
Securities Investor Protection Act 1970
Module 2 - Ethics and Regulation
Chapter 2 – Ethics and Investment Professionalism
Chapter 3 – Regulation and Supervision
Module 3 - Inputs and Tools
Chapter 4 – Microeconomics
Chapter 5 – Macroeconomics
Chapter 6 – Economics of International Trade
Chapter 7 – Financial Statements
Chapter 8 – Quantitative Concepts
Module 4 – Investment Securities
Chapter 9 – Debt Securities
Chapter 10 – Equity Securities
Chapter 11 – Derivatives
Chapter 12 – Alternative Investments
Module 5 – Industry Structure
Chapter 13 – Structure of the Investment Industry
Chapter 14 – Investment Vehicles
Chapter 15 – The Functioning of Financial Markets
Module 6 – Serving Client Needs
Chapter 16 – Investor and Their Needs
Chapter 17 – Investment Management
Module 7 – Industry Controls
Chapter 18 – Risk Management
Chapter 19 – Performance Evaluation
Chapter 20 – Investment Industry Documentation
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Request to FINRA to consider granting an exemption to the CFA Level 1 plus gap-fill course for the
General Securities Representative registration category.
For the General Securities Representative category we propose that passing the CFA Level I exam in
combination with the gap-fill course that would cover the associated rules of both the SIE and Series 7
specialized exam should meet the requirements for licensure. The gap-fill course for the CFA Level I
exam would be more extensive in content than the Claritas gap-fill course that would only cover rules in
the SIE. In this case, the gap fill course would also come with an assessment.
We believe that the CFA Level I exam would more than cover the knowledge of business component
required for general securities representatives. The CFA Level I exam requires approximately 300 hours
of study and comprises topics in fixed income, equities, derivatives, portfolio management, ethics,
economics, etc…
Besides the content overlap, we have seen that CFA Level tends to be the level that investment banks and
dealer firms target on their graduate intake programs. Their rationale being as we understand it, that not
all their staff are going to be portfolio managers or research analysts, so levels II and III are less useful.
Additionally, we have also noticed that this approach has been approach by regulators overseeing dealer
firms in other parts of the world.
As to the content of the gap-fill, since FINRA is in the process of working the content outline of the
Series 7 specialized exam, we would wait until that release to detail the content of the gap-fill. In the
appendix we provide the readings required for the CFA Level I exam.
Page 20
Request to FINRA to consider granting an exemption to the CFA Level II plus Specialized Series 87
for the Research Analyst registration category.
Currently the CFA Level II exam is recognized as being equivalent to the Series 86. Considering this
precedent we believe that an optimal structure for the Research Analyst category would be combining
CFA Level II exam with the FINRA’s specialized Series 87. In this instance, we would not look to create
our own gap-fill and take advantage of the proposed Series 87 specialized exam in regulatory
administration and best practices to meet the gap.
The CFA Level II digs in deeper than CFA Level I in terms of valuation of asset classes. Consequently
we feel that CFA Level II is a better standard for those trying to meet the requirements to practice as
research analysts.
A note of the Principal Level Structure
FINRA mentions that it is currently evaluating the structure on the principal level examination may
propose to streamline the examinations at a later date. CFA Institute would like to propose that for the
principal level examinations that the CFA Charter is considered. Clearly the CFA Level I develops
foundational competencies appropriate for entry-level, but falls short a professional standard one would
expect from more experienced professionals.
For that reason we would propose that the CFA Charter is the alternative standard for those acting as
supervisors. We believe this a compelling approach that recognizes that developing a professional is
something that happens over time.
I
I
RESEARCH ANALYST
(RS)
SPECIALIZED SERIES 87 (PART II: REGULATORY
ADMINISTRATION & BEST
PRACTICES)
Page 21
Summary of Requests
FINRA Registration
Category
General Knowledge Examination Specialized Knowledge Examination
FINRA
General Securities
Representative (GS)
CFA Institute
Proposed Path
FINRA Research
Analyst (RS)
CFA Institute
Proposed Path
+
+
+ SPECIALIZED SERIES 86
(PART I: ANALYSIS
SPECIALIZED SERIES 87 (PART II: REGULATORY
ADMINISTRATION & BEST
PRACTICES)
I + SPECIALIZED SERIES 87
(PART II: REGULATORY
ADMINISTRATION & BEST
PRACTICES)
Page 22
Question 9: How much of the fees for representative-level examinations are currently paid by member
firms versus individuals? Would the proposal change the payment responsibilities? If so, how?
CFA Institute has no data on the extent to which fees for representative level examinations are currently
paid for by member firms versus individuals. That said, it would seem logical that, under the new
structure, there is no reason to believe that firms which currently pay for their employees’ examination
fees should have any reason to alter their behavior in this regard. But at the same time, since individuals
may now take the SIE without being affiliated with member firms (and presumably paying their own
examination fees), it would seem reasonable that the percentage of individuals paying their own fees
should increase somewhat relative to the percentage of individuals whose fees are being paid by their
employers as a result of this change in policy.
As we just noted, we see no reason why firms which already pay for their employees’ examination fees
should alter their behavior in this matter. However, allowing individuals unaffiliated with member firms
to take and pass the SIE (at their expense) may have a subtle impact on the hiring process at member
firms which typically pay their employees’ examination fees. It would seem reasonable that such member
firms may now give a slight hedge in the hiring decision (all other things equal) to job applicants who
have taken and passed the SIE (at their own expense) relative to applicants who have not done so. CFA
Institute has no way of estimating how large this effect may be, but it would seem reasonable that it
should exist.
CFA Institute has no way of determining how dramatic the percentage shift between the categories of
employer paid vs. individual paid examination fees would be as a result of these two effects. Furthermore,
we are agnostic on whether or not any such percentage change would be a good thing or a bad thing. We
simply wish to note that allowing individuals not affiliated with member firms to take the SIE would
likely lead to some increase in the percentage of individuals paying their own fees relative to those whose
employers are paying their fees. Beyond this observation, we have no view on this question.
Page 23
We would be pleased to discuss our comments in greater detail, or to provide any other assistance that
would be helpful. If you have any questions, please do not hesitate to contact us.
Yours sincerely,
On behalf of CFA Institute:
Iñigo Bengoechea, CFA Daniel J. Larocco, CFA
CFA Institute CFA Institute
Director, Program Recognition Manager, Program Recognition
477 Madison Avenue 915 East High Street
New York, NY 10022 Charlottesville, VA 22902-4868
Tel: 212 418 6895 Tel: 434 951 5204
Email: [email protected] Email: [email protected]